Cotton Market Appears to be Consolidating
Since finishing June and starting July with a 6-session pullback, the cocoa market has extended a wide-sweeping coiling pattern as it has been unable to sustain upside momentum. Cocoa prices continue to stay clear of the mid-July lows and have recent supply-side developments working in their favor. For the week, December cocoa finished with a loss of 20 points (down 0.8%) which was a third negative weekly result over the past 5 weeks. A negative shift in global risk sentiment led to sharp selloff in major Euro zone and US equity markets that put carryover pressure on cocoa prices.
Coffee prices have fallen well below their mid-August highs as the market is finding some relief from a tight near-term supply situation. The world’s top 2 Arabica-growing nations continue to have production issues, so coffee prices should remain well supported on near-term pullbacks. For the week, December coffee finished with a loss of 9.05 cents (down 4.1%). The Brazilian currency extended its pullback to a new 2-week low which put carryover pressure on the coffee market as that encourages Brazil’s farmers to market their remaining near-term coffee supplies to foreign customers.
December cotton closed higher on Friday, and the market appears to be consolidating its gains off the previous week’s USDA supply/demand report that showed US 2022/23 ending stocks are expected to fall to their lowest level on record. Keep in mind that in order to hold ending stocks at the record low of 1.8 million bales, the USDA had to lower exports to just 14.3 million bales, down 2.9 million bales from this season. The dollar was sharply higher, and the fact that cotton held up in the face of that move is impressive. The Texas crop is in big trouble after a heat wave and long-term drought that is only just ending. The 1-5-day forecast calls for heavy rainfall across Texas, and the 6-10 and 8-14-day forecast call for below normal temperatures and above normal chances of rainfall, but this looks to be too late to save the crop. The extreme heat and dry conditions in China have raised concerns about production as well.
The market received bullish supply news Friday that fueled a sizable positive turnaround. If it can receive additional carryover support from key outside markets, sugar should be able to extend a recovery. For the week, October sugar finished with a loss of 51 ticks (down 2.7%) which broke a 2-week winning streak. The Brazilian currency extended its pullback from last week’s highs while crude oil and RBOB gasoline had a lukewarm finish to the week, both of which put early carryover pressure on the sugar market.
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